New bill to safeguard homeowners from unfair bank practices

A bill aimed at protecting homeowners and borrowers during the mortgage and foreclosure process was signed into law Wednesday by Gov. Jerry Brown.

Dubbed the “Homeowner’s Bill of Rights,” the new law will set forth several restrictions on banks and lending agencies that the California Attorney General’s Office said will safeguard homeowners from “inherently unfair” practices.

“The California Homeowner Bill of Rights will give struggling homeowners a fighting shot to keep their home,” said Attorney General Kamala Harris. “This legislation will make the mortgage and foreclosure process more fair and transparent, which will benefit homeowners, their community, and the housing market as a whole.”

The Homeowner’s Bill of Rights will go into effect Jan. 1, 2013. It has the potential to help homeowners in Stanislaus County, which had the third highest rate of foreclosures in California during 2011, according to the RealtyTrac Foreclosure Market Report. In 2011, one out of every 19 housing units in Stanislaus County was foreclosed upon, according to the report.

The new law specifically restricts dual-track foreclosures, where a lender forecloses on a borrower despite being in discussions over a loan modification to save the home. By prohibiting dual-track foreclosures, borrowers can have a certain amount of certainty that their loan application is getting a full review and consideration before any steps are made toward foreclosure.

The law also guarantees struggling homeowners a single point of contact at their lender with knowledge of their loan and direct access to decision makers.

Under the new law, servicers must notify borrowers when a modification application is due, if foreclosure has been postponed and if a modification has been denied. In addition, homeowners may require loan servicers to document their right to foreclose. Borrowers will also have a right to file private lawsuits under this new law to block foreclosure until the lender corrects any material violation. Borrowers can also receive damages up to $50,000 if servicers act intentionally or recklessly in violating the law, like fraudulently signed mortgage documents.

“Californians should not have to suffer the abusive tactics of those who would push foreclosure behind the back of an unsuspecting homeowner,” said Governor Brown. “These new rules make the foreclosure process more transparent so that loan servicers cannot promise one thing while doing the exact opposite.”

The Homeowner Bill of Rights builds upon and extends reforms first negotiated in the recent national mortgage settlement between 49 states and leading lenders. The Attorney General’s Office secured up to $18 billion for California homeowners in that agreement, and has also built a Mortgage Fraud Strike Force to investigate crime and fraud associated with mortgages and foreclosures.

The California Homeowner Bill of Rights also contains a variety of bills outside of the conference committee process. These will enhance law enforcement responses to mortgage and foreclosure-related crime, in part by empowering the Attorney General to call a grand jury in response to financial crimes spanning multiple jurisdictions. Additional elements will help communities fight blight related to foreclosure, and provide enhanced protections for tenants in foreclosed homes.